Hunton Employment & Labor Perspectives

In Mann Frankfort Stein & Lipp Advisors, Inc. v. Fielding, 2009 WL 1028051 (Tex. April 17, 2009), the Texas Supreme Court held that the covenant not to compete at issue was enforceable because the agreement to furnish consideration (confidential information) for the covenant could be inferred due to the nature of the contract.  The Mann Frankfort Court held that a promise can be inferred when the employee was hired to perform work that necessarily required the receipt of confidential information.  Specifically, the Court stated:

We hold that if the nature of the employment for which the employee is hired will reasonably require the employer to provide confidential information to the employee for the employee to accomplish the contemplated job duties, then the employer impliedly promises to provide confidential information and the covenant is enforceable so long as the other requirements of the Covenant Not to Compete Act are satisfied.

Id. at *1.

This is a significant—albeit, arguably logical—extension of the Court’s ruling in Alex Sheshunoff Mgmt. Servs., L.P. v. Johnson, 209 S.W.3d 644, 649 (Tex. 2006), which held that a covenant not to compete is not unenforceable simply because the employer’s promise is executory when made.

This case may indicate the beginning of a trend toward result-driven analysis—i.e. courts seem more willing to stretch an agreement in order to protect that which seems reasonably protectable, while disregarding the more stringent precedent that, historically, was tied to the plain language of the non-compete statute.  The practical result is that, in a post-Sheshunoff world, the line continues to be blurred, and it is becoming increasingly more difficult to determine whether an agreement that does not meet the traditional tenets of non-compete law may, ultimately, be deemed enforceable.